Steps you can take to actively improve
property management firm than to
market conditions. And there can be stiff
manage scattered single-family homes. NOI include:
prepayment penalties.
• Upgrading the existing buildings
Also the business tenants you get in
• Increasing TI (tenant improvement)
retail or office space are usually of
Not as Liquid
• Adding leasable square footage
higher quality than most residential
If you own 10% of a Commercial
• Raising rents
tenants. Business tenants have higher
building and want to sell your interest,
• Reducing operating expenses
credit/risk scores, have pride of
you can sell to your fellow investors
ownership in their businesses and want • Adding amenities
(who usually get first right of refusal)
to protect their livelihoods. As a result, • Adding additional revenue generating
but if none are interested, it may be
resources (ATM kiosk), and many more
they have an interest in taking care of
difficult to get out of the investment.
Rather than wait for market forces to
the property.
That is why long-term funds, like
raise real estate prices organically, you
Many commercial properties are
IRA money, are ideal for commercial
can create appreciation using levers like
NNN* (triple net), so the tenant
properties.
the ones listed above.
pays most of the expenses including
taxes, insurance, and
Sale of a Commercial
maintenance making the
Property can take longer
owner’s expenses very
om K. Wilson has utilized his experience and skills
While just about everyone
predictable and consistent.
acquired in 30 years of managing some of Silicon
wants a home, only a small
Valley’s pioneering high tech companies to buy and
percentage of the population
#3 STABLE
sell more than 2,500 units and over $130 million of real
is capable of purchasing
CASH FLOW
estate, including three condo conversion projects, eight
a retail center or office
Commercial leases are
syndications, and seven multifamily properties. He founded
building. The smaller
typically 5-10 years in
and owns Wilson Investment Properties, Inc., a company that
market of potential buyers
length vs. annually for
has provided over 500 high cash flow, high-quality, rehabbed
coupled with a detailed due
single-family homes.
and leased residential properties to investors.
diligence process means
Additionally, commercial
Active in real estate associations, Mr. Wilson is a frequent
that the sale of the property
leases include annual
speaker on real estate investing where his expertise and
can take longer than for a
bumps in rent and optionsexperience makes him an audience favorite. He is the weekly
single-family home.
to-renew. As a result of all
host of the Wed 2pm edition of KDOW’s RE Radio Live in
these factors, cash flows
San Francisco, the Wall Street Business Network (1220am).
Syndications
are more predictable.
Many of the challenges
outlined above can
#4 NO 10-MORTGAGE
be mitigated by investing with
ADDITIONAL BENEFITS
FANNIE MAE LIMIT
an experienced syndicator. Their
Of course, the five advantages of
Any loans taken by the owner or
know ledge, track record, and ability
commercial real estate listed above are
syndicate do not count against your
to qualify for the loan and manage the
in addition to the usual benefits of any
10-mortgage limit because they are in
property, allows the small investor to
real estate investment:
the name of the owning entity and not
participate in a high quality commercial
• Tax Benefits
on your personal credit. This enables
property or to invest in multiple projects
• Hedge against inflation
you to put more of your capital to
to distribute their risks.
• A hard asset with intrinsic value
work.
SUMMARY
Caveats of Commercial Investing
#5 APPRECIATION
The benefits, economies of scale,
No discussion of commercial
MULTIPLIERS
opportunities for forced appreciation
investing would be complete without
Unlike single-family homes, which
and higher returns make commercial
noting a few issues that investors should properties an attractive addition to most
are strictly valued based on market
be aware of.
demand, or ‘sales comps’, commercial
investors’ portfolio, and one worthy of
properties are valued as a multiple of
serious consideration.
Financing can be more challenging
their Net Operating Income (NOI),*
Typically, the investor(s) must put down For your free copy of Wilson Investment
which can be driven up by a good
25-30% of the sales price and finance
property manager’s addition of value.
Properties article “Are Real Estate
the loan amount over a 5-10 year term
At a Cap Rate* of 8.0,everyone-dollar
Syndications for You?” and a guide
with a balloon payment at the end of
increase in annual NOI can result in
to “Commercial Real Estate Terms”
the term. Selling or refinancing options
$12.50 of appreciation!
please go to our website, www.
at that time will vary depending on
TomWilsonProperties.com.
T
Realty411Guide.com
PAGE 71 • 2016
reWEALTHmag.com